Abstract
The main aim of this study is to investigate the factors that affect the capital structure of the Egyptian firms for building materials and construction sector and to analyze capital structures and whether optimal capital structure exists or not. A number of relevant theories of capital structure are reviewed, namely; the trade-off, pecking order and agency theories, in order to initiate some testable propositions concerning these factors that determine the capital structure of the building materials and construction Egyptian firms. This exploration is performed using panel data procedures for a sample of 18 firms listed on the Egyptian Stock Exchange during the period from 2003 thru 2012. The results recommended that profitability is negatively related to debt ratios (LTDR, TDR); whereas firm tangibility is positively linked to the debt ratios. Size, Non-debt taxes shields, liquidity and growth opportunities do not appear to be significantly related to the debt ratios. The findings of this study are consistent with the predictions of the trade-off theory, pecking order theory, and agency theory which show that capital structure models derived from these theories provide some help in understanding the financing behavior of Egyptian firms for building materials and construction sector. This study provided some groundwork to explore the factors that determine the capital structure of Egyptian firms for building materials and construction sector upon which a more detailed study could be based. Furthermore, findings should assist corporate managers to optimize their capital structure decisions. To the best of the authors’ knowledge, this study considers from the pioneering studies that explore the factors that determine the capital structure of the Egyptian building materials and construction firms by using the most recent available data. Moreover, this study to a certain extent goes to confirm the similarity of factors that affect the capital structure decisions in both developing and developed countries.
Highlights
Capital structure refers to the combination of a firm’s liabilities and owners’ equity, which means that capital structure of a firm, is a specific mix of all the claims on the firm that is used to fund its operations and expansions
This study investigates the determinants of capital structure for building and material Egyptian firms listed on the Egyptian Stock Exchange Starting from year 2003 till year 2012; the data used is published, available and collected form kompass, Egypt
The summary of the descriptive statistics of dependent and explanatory variables over the sample period is presented in Table 3, reflecting the capital structures of the analyzed firms
Summary
Capital structure refers to the combination of a firm’s liabilities and owners’ equity, which means that capital structure of a firm, is a specific mix of all the claims on the firm (debt and equity) that is used to fund its operations and expansions. Capital structure decisions is one of the three financing decisions, the financial managers must make – investment, financing, and dividends. Decisions concerning capital structure are essential for every firm. It is the job of the financial management to reach the optimal capital structure, which is the one that maximizes the firm value, while minimizing the firm’s cost of capital. The maximization of firm value is a very hard job because it involves the selection of debt and equity combination in a balanced proportion taking into consideration different costs and benefits related to different combinations. A bad decision in this selection process may lead the firm to financial distress and eventually to bankruptcy. As well as any action the financial management will take that impact the firm’s performance, and affect how the investors will estimate and perceive the firm
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